Capital growth ahead for Perth market

Land values are the key driver of property values and when land becomes scarier, properties with a higher underlying land value increase the most.

This was the case during every previous boom in the real estate market and will be the case in the future.

There are now indications that land values are beginning to rise in Perth and this trend should accelerate during .the coming year.

Astute property buyers should therefore focus on buying an older home that offers the potential for subdivision. As a general rule, investors should purchase older home sites where the land value is more than 75% of the total purchase price of the property.

In a market where land prices are increasing, an buyer who purchases a home with subdivision potential can easily achieve a return of over 50% in their investment in a short period of time.

Currently there are a large number of older homes on large blocks of land in Perth that are relatively undervalued. House prices in Perth are undervalued relative to the wages levels in Western Australia compared to the rest of Australia. On the strength of the our State economy, we should have the most expensive property prices in Australia yet house prices in Perth are still competitive compared to major Eastern State capital cities such as Sydney.

The opportunity to achieve the highest capital growth rates for older home sites are in locations close to the city, ocean or river. These suburbs include Scarborough, Doubleview, Balcatta, Westminister, Balga, Belmont, Queens Park, Spearwood and parts of Rockingham.

Currently rents in these areas are relatively high and buyers can purchase an older home, rent it while they go through the approvals process for subdivision and then resell the subdivided land in 18 months time for a substantial profit.

So investors should study their options carefully during the coming year. While new developments receive high profile exposure, investors should focus on the underlying land value of a property to determine its true potential for capital growth moving forward.